Directorship is becoming more and more complex. Increased rules, regulations, scrutiny from proxy advisors and the mounting pressure to engage shareholders mean that much more time and attention is required of board members than any point in corporate history. C-Suite spoke with Jim Nevels, Lead Director at The Hershey Company, as well as a director at First Data Corporation and WestRock Company, about how the director’s role has changed and what board performance means in today’s corporate environment.
Jim Nevels: Things have changed so dramatically since I first joined the Tasty Baking board in 2005, but there are several examples that stand out to me the most. First and foremost is risk oversight, starting with the notion of separating risk management from audit, for example, and the significant rigors and demands Sarbanes-Oxley placed on audit committees and how they would assess risk. Then you move from the idea of general risk to what’s a concern for every company—cyber risk. That became front of mind just in the past five years after we’ve seen the major disruptions cyber crime has caused in corporate enterprises.
More broadly, the power of that little handheld device that you have in your pocket has changed the tenor of the boardroom. It can take a picture, it can go on the internet, it can blog, it can do all kinds of interesting things that may be good or potentially not so good for a corporation. It all comes back to being more and more aware of what can affect your company quickly and significantly.
Nevels: Board performance is judged differently now because of the rapidity and warp speed at which information can move. Nimbleness of boards and their ability to respond quickly in conjunction with management is at a premium. All the while, with all the nimbleness needed, you have to ask how you also maintain the appropriate line between management and governance.
I am a strict believer in observing that line because the action and reaction of a corporation is dependent on it.
For example, my natural tendency would be to focus on pension funds because that’s what I do in my regular daily business. But the more important question and the perspective a board member must bring is what will the enterprise look like three, five, 10 or 15 years out. It’s really hard not to focus on how the pension fund fared quarter to quarter—those are the things management is charged with. For the board, it’s a question of how we keep a long-term view in a rapidly moving environment.
Nevels: There is this idea out there that directors should “think like an activist.” If you’re the director, you have to do that. Well, how does an activist think? Commitment to shareholder value is the starting point, and then serving multiple constituencies. For the board, figuring all that out in the short, intermediate and long term is the rub. The real conundrum is how to maximize shareholder return over a reasonable amount of time without debilitating a corporate organism longer term.
Whether it’s corporate governance or it’s your local school board, it’s good to operate “in the sunshine” and entertain detractors who may have a good point. Sometimes they don’t, and sometimes they do, but we definitely need to be aware of issues that activists bring. Quite frankly, they’re not just financial activists. They have provided input that has changed corporate boardroom behavior, and that’s a good thing.
Nevels: There was a time years ago when there were people on double-digit boards. Those days are over and frankly should be. But as long as you can be adequately prepared to discharge that responsibility, which includes attendance at board meetings, that can be the self-regulating mechanism.
I also believe that it can be a good thing to serve on more than one board. You can have incredible a-ha moments bringing one idea to another board. You build transformational knowledge that is impactful across industrial segments. My advice would be don’t bite off more than you can chew, and be intellectually curious.
Nevels: I think it is essential. It becomes very important to have that annual assessment because it gives an insight to a board’s effectiveness. You have to take the opportunity to look at the qualities and skills of board members and the needs at the company. For example, do you think that 20 years ago, cybersecurity was on anyone’s grid as a necessary talent? Even 10 years ago?
A corporation is a living organism, and it adapts itself by sustaining in the world around it. I think it becomes important to ask if a 65-year-old director is old? I thought it was old when I was 20, but now at 64 I don’t. Do I think that as one approaches 70, is that a reasonable retirement age? You can always say there are exceptions. There are 100-year-olds that can run circles around me. The question is whether it is tenable to have a high percentage of people at a given age able to be functional contributors.
That’s what boards do. They drive consensus around those issues, and hopefully they do so with intelligence and integrity. We rent these positions, we don’t own them. Some may disagree—and I respect them if they do—but I strongly believe that.
Nevels: The issue boils down to this. There is no person or group of people who are indispensable to service. If you have a group of directors who retire all at the same time, and you have all this history and institutional memory walking out the door, that’s the board’s fault, because it’s their responsibility to draw on talent and to renew and refresh itself. If there is a tilting in age, then shame on us for not bringing on new people.
If you’re a consumer products or goods company, that’s a fast moving business with many different constituencies, and it certainly makes sense to have gender diversity, ethnic diversity and intellectual diversity on the board. The people I know in the technology industry are younger than me by a lot. They are in their 30s and 40s. Should we be making time and making room? Anyone who says that ‘I have so much experience that I am indispensible’ is a flight of hubris I will not engage in. You have to have the intelligence and the integrity to know when it’s time to step down, and to work with your colleagues on the board to drive a consensus.
Nevels: The challenges have decreased over time as we grow and we develop and change. As we look at the classic grid and ask what are the areas of expertise that you want, there is nothing like intellectual diversity. It’s stimulating, it’s great. If we look at people’s life experiences, there are insights that gender and ethnic diversity can bring to the table, and that is conjoined around skill sets. If you have a person that is not filling a skill set, then why are they sitting in the boardroom? We are at a time in this country’s history where there are people of all diverse backgrounds that can do this job.
Nevels: This year especially it will be around the appropriate metrics to evaluate the financial health and progress of a company. What are the ways in which a company and its board and management will be evaluated in potentially a slow growth environment? It spills over to questions about compensation. What if you’re leading the pack in an industrial segment but are not growing year over year? That’s a real conundrum—if you’re charged to retain talent, and we know it’s all about talent, how do you base compensation?
I also think that how we look at and examine the sensitivity and sensibilities around global social responsibility will be another issue. And the one that continues to linger is the issue of cybersecurity and risk. There has to be uneasiness, and if you’re not uneasy you’re not going to vigilant. You can’t comprehend what the next curveball is going to be and which way it’s going to break.